Make Your Retirement Portfolio Last Forever

The purpose of investing in retirement is to keep up with inflation so that you can continue to live the lifestyle to which you’re accustomed. If you keep all your money in cash, you will end up running out in retirement (unless you have millions of dollars) . You absolutely have to invest your money in a Triad Portfolio to make your retirement portfolio last forever.

Your cash returns are no longer valuable. You used to be able to make 5% on certificates of deposits. Those days are gone. Keep the purchasing power of your hard earned money and put it to work, even in retirement.

Portfolio Goal

The main goal of your investment portfolio is to have the principal increase every year even while you withdraw money at a safe rate for living expenses.

Your ‘forever’ retirement portfolio should look like this:

forever portfolio

This portfolio assumes an initial portfolio amount of $500,000, return on investment of 7%, and annual withdrawal rate of 4%. As you can see, the portfolio increases year after year, even while you’re withdrawing 4% annually.

You withdraw $20,000 while your portfolio increase $35,000 for a net gain of $15,000 in year 1. I recommend making quarterly withdraws at the end of the quarter. You could also withdraw on a monthly interval but I don’t like this method as much. I’d rather see some income coming into your portfolio prior to pulling money out for expenses.

You can imagine how much you could withdraw annually if you didn’t want your portfolio to increase every year. Let’s say you want to leave nothing to your kids. You want your portfolio to last a fixed time frame after which it will be zero.

A higher annual withdraw rate with the goal of your portfolio being $0 at death will look like this:

decreasing portfolio

In this scenario, you’re withdrawing a fixed amount of $45,000 annually. At this rate, your portfolio will last for approximately 23 years. Not bad for an initial 9% withdraw rate! You can imagine all the different ways this could play out. Your assumptions will change based your initial portfolio value, the allocation you have to stocks versus bonds, and your desired rate of withdraw.

You can download this spreadsheet to input your own assumptions: Portfolio Simulator*

*Fill in the yellow cells only. The data to the right of the yellow cells is your output data along your own area chart.

How Should I Allocate My Investments?

One of the most difficult investing aspects to figure out is portfolio allocationYour portfolio allocation will depend on your financial objectives, risk tolerance, your current income and future income needs.

You may have heard of age-in-bonds. That is you should keep the percentage of your assets in bonds based on your age. If you’re 60, you should have 40% of your money in stocks and 60% in bonds. I think this is bad advice and you shouldn’t follow it unless you’re extremely conservative and don’t care about increasing your wealth.

I prefer a portfolio allocation as follows:

  • 120 – your age = percentage in stocks
  • 100 – percentage in stocks = percentage in bonds
  • Allocation to be adjusted based on alternative investments

Allocation of capital is a difficult, yet highly rewarded in our capitalist society. The reason why successful entrepreneurs are rewarded so heavily is their ability to allocate capital wisely. Just look at Warren Buffett. This guy jokingly says that if he were born thousands of years ago, he’d be more likely to be eaten by a tiger than anything else. He was  born at the right time. A time when allocating capital is greatly rewarded and this is why he’s one of the richest people on earth.


It is said that diversification is an investor’s only “free lunch.” I generally agree with this statement. It doesn’t cost anything to invest in more assets but it may affect your ability to keep track of everything.

My portfolio (and I’m just including this here because people like to know) consists of:

  • 30% Dividend / Income Stocks (about 6 different individual stocks)
  • 30% Growth Stocks (about 5 different individual stocks)
  • 10% Oil and Oil Options (I own oil and sell call options against what I own)
  • 30% Cash and Fixed Income Securities

And I should also say this allocations changes based on what I feel like doing. Hey, this is the advantage of running your own portfolio. I generally like to keep most of my money in equities with some dry powder lying around in case anything goes on sale.    

How many stocks are enough?

A study by Elton and Gruber found that the benefits to diversifying diminish after an investor has twenty stocks in his portfolio. With each stock you add to your portfolio the benefit of diversification is reduced. Elton and Gruber show this in their study. After holding just twelve stocks, in fact, most of the benefits of diversification are maximized. 

A good way to look at this is to look at the standard deviation (sigma) of an entire portfolio as stocks are added. If an investor only has one stock in his portfolio, then the standard deviation (sigma) of his portfolio has a wider range than the S&P 500 index. Over the course of any 12-month period, the S&P 500 index has a 68% (one standard deviation) chance of returning between a gain of 34.1% and a loss of 9.8%. This is a statistical measurement which has been tested to be accurate. A one stock portfolio may have a 68% chance of returning between a gain of 50% and a loss of 30%.

All stocks have different returns related to standard deviation. To diversify away from this chance of a large loss, the investor must adds another stock to his portfolio.

With two stocks, there is a 68% chance of returning between a gain of 45% and a loss of 25%. Notice how the gain and loss are both trimmed. The investor’s risk went down and with it his expected return also went down. As you keep adding stocks, the expected gain and loss go down. This happens quite rapidly until you hold about twelve stocks in your portfolio.

As you add additional stocks to your portfolio beyond twelve, the marginal benefit of diversification decreases rapidly. So much so that there is little benefit to diversifying after you hold twenty stocks in your portfolio. I think holding between 12 and 20 stocks across different industries is the sweet spot for individual stock diversification.

How many ETFs, Index Funds or Mutual Funds are enough?

ETFs, Index Funds, and Mutual Funds all include multiple securities and are diversified to some extent. You could just buy an ETF that tracks the S&P 500 index (SPY) and you would be completely diversifiedThis ETF holds each of the 500 individual stocks that make up the index in weighted proportion. The top ten stocks in this index are the largest companies in the world:

Apple Inc. 3.10 %
Microsoft Corporation 2.44 %
Exxon Mobil Corporation 1.93 %
Johnson & Johnson 1.75 %
Berkshire Hathaway Inc. Class B 1.58 % Inc. 1.56 %
Facebook Inc. Class A 1.50 %
JPMorgan Chase & Co. 1.48 %
General Electric Company 1.46 %
Wells Fargo & Company 1.25 %

You can download all the holdings here.

So if you want easy, it doesn’t get better than an ETF like SPY.

Target-date Funds

Target-date funds have become more and more popular recently. You may have noticed this option in your 401(k) at work. All the big boys (Vanguard, Fidelity, T Rowe Price) include these target-date funds in their 401(k) mix. These funds change their allocation to stocks as bonds based on the year which correlates to your age.

For example, Vanguard Target Retirement 2015 (symbol VTXVX) is designed for those people who retired on or around 2015. This portfolio currently holds about 50% its portfolio in stocks and 46% in bonds.

You can choose whatever target-date fits your risk profile, regardless of your age. A more aggressive 70 year old retiree may want to invest the Vanguard Target Retirement 2025 (symbol VTTVX).

The Market

There are three main factors that drive the market:

  1. Dividend Growth
  2. Earnings Growth
  3. P/E expansion (multiple expansion)

The first two factors are what the investors should focus on. The last factor, P/E expansion, is based on the overall feelings of market participants. You and I are market participants. So are Fidelity and Warren Buffett.

We collectively make decisions based on our expectations of what we think. What we think can be based on data, heuristics, media, fortune tellers, etc.

Fear = P/E compression and Greed = P/E expansion

Are you fearful or greedy? Are you worried that whatever on the news will cause your stock to dive? Then you’re more likely to sell which in the aggregate will depress P/E ratios. Do you think your stock will go up and up forever? You’re more likely to overpay which leads to P/E expansion.

As you are probably aware, “feelings” are a difficult thing to forecast in your financial modeling. I don’t believe fully in the efficient market hypothesis. I believe that you can find deals in the market; not all the time but there are plenty of opportunities.

Yet, many will tell you that the market is efficient, properly discounting a multitude of variables to come up with the perfect price. They say there is no sense in trying to outwit the stock market since everyone has the same information you have and that it’s reflected in the price. I disagree.


Investing your money can be difficult because you have so many options and there are many ‘advisors’ with differing opinions. You have to understand your investments and properly diversify across different asset categories. It’s possible to own a retirement portfolio that never decreases. This is possible because the returns that your portfolio generates is greater than your withdraw rate. I’d like to know your investment mix and what you think about the market’s record highs. Do you think they’re going to last? What are you doing to stay diversified?

By | 2017-12-18T17:41:42+00:00 October 25th, 2017|Investing|2 Comments


  1. Dave @ Married with Money October 25, 2017 at 9:24 am - Reply

    Just a quick note on the 4% rule since I think there is a misinterpretation of the rule here. The rule states that the FIRST year, you withdraw 4% of your INITIAL balance. Every subsequent year you adjust for inflation based on the CPI; NOT for the adjusted value of your portfolio (which seems to be what your first graph represents). It’s a small difference, but one that can make or break the portfolio.

    As for me, I’m investing in a total stock index fund and the bond allocation of my investment is going toward mortgage payoff for now, and will be going toward bonds once my mortgage is paid off.

    • Matt Miller October 30, 2017 at 6:41 pm - Reply

      Hi Dave! You’re absolutely right on the 4% rule: the withdraw amount the 2nd year and after are adjusted for inflation. I wasn’t talking about the 4% rule in this post. I think I used 4% as an example here but you could put any rate in there. This is a simple way to show that if you withdraw a rate less than your expected growth rate, your portfolio will continue to rise in perpetuity.

      You’ll never regret paying off the mortgage. It might not make the most financial sense but will definitely put you at ease. I like to carry a big long term mortgage at a nice low rate and refuse to pay an extra dollar above my monthly payment amount.

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